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Monthly Archives: September 2014

During 2004-05 and 2011-12, when India’s GDP rose annually by 8.3 per cent on an average, its manufacturing sector grew at an even higher rate of 9.25 per cent. The next two years saw average GDP growth slump to 4.6 per cent and manufacturing to a mere 0.2 per cent. It follows, therefore, that a genuine economic recovery is almost impossible without a turnaround in manufacturing. A manufacturing revival is also important from an employment perspective. The period between 2004-05 and 2011-12 witnessed, for the first time, a reduction in the country’s agricultural labour force by almost 40 million. This was enabled by an estimated 50 million-plus jobs being created outside of farms. Without a strong manufacturing sector — which has forward as well as backward linkages to construction, transport and related service industries — there just won’t be jobs for the 10 million-odd people entering our workforce every year. This would force a distress reverse migration back to farms and other low-paying rural jobs.

It is in this context that the thrust on manufacturing, underlined by the ‘Make in India’ campaign to be launched on Thursday, is welcome. Given that the manufacturing sector is still in the doldrums — the measly 2.3 per cent year-on-year growth registered in April-July is proof of this — Prime Minister Narendra Modi is aware of the dire need for getting our factories to roar back to life. The planned high-profile initiative at marketing India to both overseas and domestic corporates represents, if anything, a concerted effort to attract investments into manufacturing. India’s large and growing market — for everything from mobile phones and LED TVs to steel, chemicals and power equipment — no doubt makes it a compelling place for producing stuff that can be directly sold here. Modi has gone a step further by imploring investors to “sell anywhere (including abroad), but manufacture here”. Rising labour costs in China only reinforces such optimism about India emerging as the world’s next big factory.

It will, however, take more than simple slogans to convince a Samsung, Hitachi or Haier to make things in India that they are largely importing now. There are two broad sets of impediments here. The first is the lack of reliable power, roads, water and other infrastructure, which nullifies much of the inherent competitive advantages in manufacturing out of India. The second is the web of domestic regulations pertaining to labour, taxation, land acquisition, environment and other statutory clearances. Navigating through these is both time-consuming and costly, which also explains why India ranks 134th among 189 economies in the World Bank’s Ease of Doing Business ratings. Realising the Make in India dream would require the Modi government to address both the ‘hard’ infrastructure and ‘soft’ regulatory issues. The fact that many of these fall under the domain of the States poses an even harder challenge.

The Narendra Modi government may be talking of economic reforms, but the confidence of global investors in the Indian economy still seems jittery. Honda’s global chairman Fumihiko Ike has said that doing business in India remains difficult and processes in the country are “complicated” and “burdensome”.

Ike, who also heads the crucial Japanese Automobile Manufacturers Association (JAMA), said the new government should take steps to improve the investment in the country as poor infrastructure and uncertain tax regime makes it tough to do business in India.

Ike’s statement comes a day after British telecom giant Vodafone echoed similar sentiments and European oil major BP also expressed “frustration” over the delay in gas price hike, which was delaying the proposed investment by the company. Vodafone, which battles a Rs 20,000 crore claim by the government over a capital gains tax issue, said foreign companies find it “difficult” to do business in India because of slower government clearances.
Speaking at the 54th annual convention of Society of Indian Automobile Manufacturers ( Siam) here, Ike said the Indian government needs to take steps to make the country an attractive destination for foreign investors and “improve the business environment for investments”.

Ike said component suppliers to automakers “encounter problems” in getting business permits and having their paperwork done and many of the processes related to the setting up of factories are “complicated” and thus require simplification.

Ike made a special mention of the tax regime in India which he said was “burdensome” when compared to other countries. This, he said, was “impeding investments” in India.

The Honda chief sought an early rollout of a single goods and services tax. “India has a complex domestic tax system. We want a single tax system.”

However, while highlighting the problems being faced by foreign investors, Ike had a special mention for Prime Minister Narendra Modi who promised the ease of investments in India during his recent trip to Japan.

Ike said the Japanese investors were enthused by Modi’s call to increase investments in India. “He has promised that red tape will be replaced by red carpet. This makes us optimistic on making investments.”

BP Plc, whose $7.2 billion investment in 2011 was the largest foreign investment in the energy sector in India, said on Thursday that the delay in implementation of a natural gas price hike was frustrating.

“We are ready to go ahead with our first project which is probably a $4 billion project. We are getting ready to potentially move that forward (but) are waiting for the gas price decision. So, is that frustration, yes because it was decided last June 2013,” said Sashi Mukundan, regional president and head of country (India), BP Group.